Investment in treasury bonds in Kenya is as easy as 123 in Kenya today. A bond is loaning the company or a government for a fixed interest rate over a set period. This bond often happens when the government requires funds to fund various projects such as rural electrification. In this article, we will look at the different types of bonds that one can choose to invest in and its returns.
We will look at:
How does an investment in bonds work?
What are the various types of bonds to invest in
Why should you consider investing in bonds
The disadvantages of investing in bonds
How does an investment in bonds work?
Traditionally government bonds in Kenya will earn you a 10% interest for the period until maturity. Say you buy Ksh, 50,000 worth of bonds at a fixed interest rate of 10% for ten years, and you will earn an interest rate every six months until its maturity in the tenth year.
To start investing, you will need to open a CDSC account which will then allow you to trade. Here is how to go about opening a CDS account. The central bank of Kenya solely manages this account.
What are the various types of bonds that one could choose to invest?
Here are the various types of bonds available to Kenyans for investment. These include:
- Treasury bonds – These are government-issued bonds. The minimum number of years that one can hold a treasury bond is ten years. If you follow any investment manager, they will describe this type of bond as the safest way to grow your money since the government may never fail to pay. It is worth to note that some very long term treasury bonds may take 30 years to mature.
- Companies issue corporate bonds – This type of bond if they are looking for funds to grow. The interest rate offered here is higher when compared to the one provided on treasury bonds. They may also take a shorter time to mature.
- The government issues infrastructure bonds – These bonds to support a specific project. This bond is often issued at the market rate and is tax-free.
Read Also: Investing in Kenya
Why should you consider investing in bonds?
- Bonds attract low-interest rate and hence a safe way of investing your hard-earned money.
- You know when to expect your money and how much of it, therefore, one can plan effectively.
- You are assured of getting your principal amount back if you hold your bonds to maturity.
Disadvantages of investing in bonds
- A high inflation rate may negatively affect your returns
- The return on investment you will get from investing in bonds is very low as compared to if you purchased shares.
Investing in Bonds in Kenya is worth trying. If you have not invested in them yet try it out!
